Food and Agribusiness

Domestic and Global Trends in the Food and Agriculture Market

Domestic and Global Trends in the Food and Agriculture Market

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[Host] While many trends have shaped the Food and Agriculture industry domestically, such as the push for organic products, the U.S. has been increasing its exports overseas as well. This has led to greater growth prospects both in the U.S. and abroad, and interest from investors looking to take advantage of the trends. Todd Southerland, Food and Agriculture Industry Specialist and Senior Vice President with SunTrust Bank, shares his insights on this growing industry, and why these shifts are taking place.

[Todd Southerland] When you compare food and agriculture to many other industries, this particular industry is attractive to financial players because they know it will always exist within the borders of the United States.

Companies that have chosen to put dollars to work in the food industry are constantly looking for the ability to expand their geographic footprint, to leverage their existing supply chain.

One way to do that is to provide additional products to existing customers. Another is obviously to add new customers and new relationships to that. And because the food industry has become global in perspective, they are oftentimes looking at foreign markets in a way to take items to customers that have not traditionally purchased those items.

[Host] Since protein is the industry’s biggest money-maker, and demand is up not only in the U.S., but overseas as well, companies are increasing their shipping volume to foreign markets.

[Southerland] Developed economies are high users and consumers of protein. There's no question about that. If we look at the United States today and we consider the four major proteins—which would include chicken, beef, pork, and turkey—we consume around 205 pounds per capita each year, and that's remarkable in and of itself.

A lot of that is a function of disposable income, which is among the highest in the U.S. of the world. What we're seeing is that developing economies where disposable incomes are on the rise is that demand for protein is starting to increase. Now, one of the big differences between the developed economy such as the U.S. and the developing economies is that in those developing economies, price pays a very critical role.

And if you stack up the different proteins available, eggs are going to be the cheapest source and we have seen an explosion in the rate of egg exports and egg product exports from the United States. Chicken is going to be the second cheapest source of protein, which is behind a lot of the surge in exports that we've seen in that market. It's a surge that really began a couple of decades ago with the opening of Russia to U.S. leg quarters, which is dark meat, and has continued significantly.

So today, we have tens upon tens of countries—foreign countries—that accept meaningful amounts of chicken and other protein products.

So those developing economies will continue to be desirous of protein, but they will continue to have to make those decisions around price, and around the types of protein they consume, be it conventional or traditional versus antibiotic free versus organic. Consumers that live in developing economies that have lower disposable incomes don't have that luxury. So again, price plays a very critical role in the choices that they make.

[HOST] Cost can play a role domestically as well, especially when it comes to organic trends.

[Southerland] I see a lot of opportunity within the protein space as we continue to expand interest primarily domestically into the antibiotic free and the organic space. The price of organic chicken and other premium products is obviously higher than conventional and traditional chicken products or other conventional protein products.

There's clearly a cost associated with not using antibiotics in birds. There's a cost associated with the way that animals are raised, and ultimately the cost associated with these changes will be passed along to the consumer.

What's changed in the specialty protein market is that we started with a small percentage of the overall population that was demanding of that protein and it was being provided through specialty channels and now it's gone from a pull method to a push method in that the retailers in the other fast food and food companies' providers are pushing this product on the consumers without, in my opinion, truly understanding what the total cost may be.

[Host] Cost awareness is improving all the way down the line, however, as consumers are gaining a better understanding of the impact of commodity pricing in this industry. And this could bode well for the farming industry.

[Southerland] I think one factor within the food and agribusiness space that's very unique and worth considering is the impact that commodities play in almost every food item that we eat or every beverage item that we drink.

Everyone understands the items that they eat and they drink every day, but people don't commonly tie the two together to truly understand how changes that can occur on a farm located in North Carolina can impact the price of the meal that they're going to eat at dinner this evening. Every finished good that we consume in some way is tied back to one of those commodities.

And I think being able to make a connection between the farm and the table, between the commodities that are subject to significant volatility in price, and significant commodity price risk, all of which is mostly borne by the farmer himself or herself that those impacts need to be carried through the supply chain in some form because I think when you look at the stability of this industry, if you work from the consumer back to the farm level, the closer you get to a consumer, the more stability you see in margins and profitability. The closer you get to the farm level the less stability that you see, and I think for lack of a better way of saying this, we need to see more risk sharing across the entire supply chain.

[Host/CTA] Thanks Todd. To learn what business leaders from all over the U.S. recently told the National Center for the Middle Market about revenue and employment trends, opportunities and potential challenges, listen to our podcast on the Dallas market and download the full middle market indicator report.

Many trends have shaped the Food and Agriculture industry domestically and overseas as well. This has led to greater growth prospects both in the US and abroad. Todd Southerland, Food and Agriculture Industry Specialist and Senior Vice President with SunTrust Bank, shares his insights on this growing industry and why these shifts are taking place.

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